Consumers Ride to the Rescue Again

Despite recurring unpleasant experiences with ice, sleet, snow, exceptionally low temperatures, wind and rain so far in 2014, consumers have kept on spending. On March 13, the Census Bureau gave us our first look at retail and food services sales for February.

The chart shows this story. After a 0.6 percent decline in January from December, total retail and food services sales posted a 0.3 percent increase in February from January. The total of $427.2 billion is the best February ever and 1.5 percent above February 2013.

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It is the fourth-best month ever, behind only October, November and December (in descending order) of 2013. In what is undoubtedly at least partially due to the unusually bad weather endured by so many parts of the nation, by far the best increase (6.3 percent) above February 2013 was racked up by nonstore retailers. So long as people had electricity they could order over the Internet or by telephone.

The second biggest increase was posted by “Health and personal care stores,” where sales rose by 5.5 percent above a year before. “Building materials and garden equipment supplies dealers” were next with a 3.2 percent year-over-year rise.

Gasoline stations had sales 4.6 percent lower than a year earlier. That was the result of slightly lower crude oil prices and less demand.

No matter the weather, people kept eating. Sales at “Food and beverage stores” were up 2.8 percent from a year earlier with the grocery stores part up 2.4 percent. “Food services and drinking places” (aka bars and restaurants) saw sales rise by 2.6 percent.

Consumers remain reasonably optimistic about the economic future for good reasons. The demand for labor is rising, which means that jobs are easier to find while wages and salaries are also growing.

With rising incomes, consumers have more money to spend on goods and services. This causes increases in retail sales and new orders from retailers to restock shelves keep industrial production growing. That in turn leads to more employment and more income. Economists call this lovely situation a virtuous cycle.

While the period since the end of the recession in June 2009 is still the weakest expansion in over 100 years in the US, we are finally entering a virtuous cycle. This year should be the first year with real GDP growth above 3.0 percent since 2005. That would be very good news indeed. The weather will improve and most of the output lost in the first quarter will be made up in April, May and June.

There will be some impact on the monthly profile of retail sales in 2014 because Easter is several weeks later this year than last. This year it will be on April 20 and last year it fell on March 31. Thus, we may have to wait for May to get a clear picture of exactly how robust retail sales are.

The Census Bureau will release revised data on retail and food services sales for the period from January 2012-March 2014 on April 30. Those data may change our understanding of consumer spending patterns somewhat. They will undoubtedly reaffirm the vital contribution of consumer spending to US economic growth.

Dr. James F. Smith
Chief Economist

 

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